Euro Zone Inflation Stays Low; Joblessness Remains High

A job fair in Barcelona. The unemployment rate in January for the euro zone remained at 12 percent, Eurostat reported on Friday.

Gustau Nacarino / Reuters

By DAVID JOLLY

February 28, 2014

PARIS — Inflation in the euro zone remained stuck at a very low level in February, while the jobless rate was unchanged in January, official reports showed on Friday, providing the European Central Bank with crucial data before its monetary policy meeting next week.

The central bank is concerned that, with unemployment depressing demand, extremely low inflation could ultimately bring on a debt spiral that hurts borrowers and already-weak banks. Whether the latest data will prompt any action by the central bank is hard to predict.

On Thursday, at an international meeting of central bankers in Frankfurt, the central bank’s president, Mario Draghi, was sticking to his script of recent weeks, which so far has resulted in the bank’s taking no new action to stimulate the euro zone economy. “Overall, we see the euro area’s economic recovery gradually taking hold, albeit at a slow and uneven pace,” Mr. Draghi said in a speech.

Mr. Draghi expressed concern about the low level of prices, but added, “We are clearly not in deflation,” a condition he defined as “a self-reinforcing fall in prices that is broad-based across items and across countries.”

According to the data on Friday, consumer prices in the 18-nation euro zone rose at an annualized rate of 0.8 percent in February, unchanged from the revised figure for January. The “core” inflation rate, which excludes energy and food prices, ticked up to 1 percent from 0.8 percent in January, Eurostat, the statistical agency of the European Union, reported from Luxembourg.

The jobless rate in January for the euro zone remained at 12 percent, Eurostat reported. For the full European Union, made up of 28 nations, unemployment stood at 10.8 percent, also unchanged.

The numbers contrast with the United States’ jobless rate of 6.6 percent in January. But questions remain about the strength of the American recovery.

Revised data released on Friday in Washington indicated that the economy in the United States grew at a slower pace in the fourth quarter of 2013 than first thought, weighed down by disappointing retail sales, inventory adjustments and a less robust trade balance.

The Commerce Department now estimates that the American economy grew 2.4 percent in October, November and December, down from an initial estimate of 3.2 percent released in late January. At 2.4 percent, the revised figure represents a substantial slowing from the pace of growth in the third quarter, which was 4.1 percent.

Most experts predict that the American economy will continue to expand at a lackluster pace in the first several months of 2014, with growth picking up over the remainder of the year. Economists are looking for growth of about 2 percent in the first quarter.

While the European headline numbers were largely in line with market expectations, investors read the small increase in the core inflation rate as making it less likely that the European Central Bank would take policy action when it meets next week, and the euro jumped 0.6 percent to its highest level of the year, at $1.3802.

The euro rose against the dollar, reflecting diminishing expectations of a rate cut by the central bank next week. The Federal Reserve is holding its own benchmark, the federal funds rate, at a record low near zero. With the European bank’s key rate at 0.25 percent, money managers have an incentive to park funds in short-term euro securities to eke out a small premium over what they would get in dollar investments.

Officially, the euro zone has been gradually recovering since early 2013, its economy growing at a 1.1 percent annualized rate in the fourth quarter. Olli Rehn, the European commissioner for economic and monetary affairs, estimated on Tuesday that the currency bloc would grow 1.2 percent in 2014.

That growth is too weak to make much of a dent in the region’s record joblessness, however, and Mr. Rehn said that he expected the euro zone jobless rate to fall only to 11.7 percent by next year. Eurostat said on Friday that 26.2 million people across Europe are currently classified as unemployed, including more than 5.5 million young people.

The jobless rate varies widely between countries. Austria, at 4.9 percent, and Germany, at 5 percent, are the lowest in the European Union. But Spain, at 25.8 percent, and Greece, at 28 percent in December (the latest data available), are both experiencing depression-level unemployment.

In Italy, where the new government of Prime Minister Matteo Renzi is grappling with political turmoil and a stagnant economy, the jobless rate rose to 12.9 percent, the highest in decades, from 12.7 percent in December.

Rolf Campos, an assistant professor of economics at the University of Navarra, Spain, said the rebound in core prices might reassure the central bank, making it feel “less pressed to do something to prevent undershooting” its target of keeping prices rising at a level of just under 2 percent.

The concerns over deflation may be overstated, he added, as “low inflation rates are actually showing that the healing process has begun in the European periphery.”

Jörg Krämer, chief economist at Commerzbank in Frankfurt, predicted before the data was released that the European Central Bank would cut its main interest rate target, currently at a record low of 0.25 percent, when it meets next week.

But the inflation report “weakens the position of the doves in the E.C.B. governing council,” he said after the Eurostat report. “The decision on interest rates on Thursday is therefore quite open.”

Central bank officials may decide to find another way to provide monetary stimulus, he said, perhaps by using technical measures to increase the money supply, while allowing the central bank to hold the interest rate weapon in reserve.

Correction: February 28, 2014

An earlier version of this article referred imprecisely to the consumer price data from the euro zone released on Friday. Prices rose at an annualized rate of 0.8 percent, not 0.8 percent for the month.